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Why General Motors and Honda Are Getting Serious (Maybe) About Hydrogen Fuel Cells

General Motors' global product chief Mark Reuss (left), Michigan Lt. Governor Brian Calley, and Honda's North America chief Toshiaki Mikoshiba with a prototype of the small fuel cell stack developed jointly by the two automakers at a press event on Monday. Image source: General Motors.

General Motors (NYSE:GM) and Honda (NYSE:HMC) announced on Monday that they will mass-produce fuel cell systems for vehicles at a plant in Michigan, starting around 2020.

The companies have been working together on advanced fuel cell systems for vehicles since 2013. Monday's announcement formalizes their longtime goal of beginning mass production of fuel cell systems by the end of the decade.

What's this about?

What GM and Honda said: A new joint venture

The two companies have created a new 50-50 joint venture company, called Fuel Cell System Manufacturing, LLC. The joint venture will mass-produce fuel cells for GM and Honda vehicles in Michigan, at an existing GM facility south of Detroit that currently assembles battery packs for GM's hybrids and electric vehicles.

The joint venture will be housed in this building in Brownstown, Michigan, near Detroit. Image source: General Motors.

Production is expected to begin "around 2020," according to a joint statement from the automakers. The effort will create up to 100 new jobs. The two companies have invested a total of $85 million in the joint venture, split equally between them.

"Over the past three years, engineers from Honda and GM have been working as one team with each company providing know-how from its unique expertise to create a compact and low-cost next-gen fuel cell system," said Honda's North America chief, Toshiaki Mikoshiba. "This foundation of outstanding teamwork will now take us to the stage of joint mass production of a fuel cell system that will help each company create new value for our customers in fuel cell vehicles of the future."

What's a fuel cell system and why does it matter to automakers?

A fuel cell system, often called a "stack," is a device that chemically converts the energy in hydrogen gas to electricity. Fuel cells can be used to power electric vehicles. Like battery-electric technology, fuel cells are considered "clean" energy, as the only byproduct of the chemical conversion process is water vapor.

Fuel cells offer automakers some advantages and disadvantages in comparison to the battery-electric technology that powers most electric vehicles now.

The advantages:

A fuel cell stack and hydrogen tank weigh less than the battery packs used in current long-range battery-electric vehicles. The difference is more dramatic with larger, heavier vehicles.

Fuel-cell vehicles (FCVs) can be "recharged" with hydrogen in about the same amount of time it takes to fill an internal-combustion car's gasoline tank, about five minutes. That's much faster than the 30 minutes or more that battery-electrics take to recharge even with "fast chargers."

Taken together, the advantages point to some applications in which fuel cells might make more sense than battery packs: First responders, military applications, and heavy trucks, for instance.

The Honda-GM fuel cell stack is much smaller than earlier versions. Image source: General Motors.

The disadvantages:

Right now, there are very few hydrogen refueling stations, and they are clustered in one part of the country (southern California).

Some environmental experts argue that current processes for creating hydrogen gas on a commercial scale aren't very green.

Cost: Fuel cell stacks use rare metals and have so far been very expensive to produce.

GM and Honda have experimented with fuel cell technology for decades, but it's only recently that fuel cells have become small and inexpensive enough to be considered seriously for mass-produced vehicles. Reducing the size and cost of the fuel stacks still further have been key goals of the GM-Honda program.

Why it's significant for investors

It's clear that the auto industry is on a path toward electrification. Right now, the dominant technology for electric vehicles appears to be batteries, and it looks increasingly likely that batteries will become the established default for electric passenger vehicles.

Honda's fuel-cell-powered Clarity FCV went on sale at a few U.S. dealers late last year. Image source: Honda Motor Co., Ltd.

But as noted above, there are some applications where a fuel cell might make more sense. GM in particular has said for a while that it envisions building a mix of fuel-cell and battery-electric vehicles in the future.

The significance for investors is this: If fuel cells turn out to be the best solution for certain kinds of electric vehicles, both GM and Honda will be in the forefront of efforts to mass-produce them affordably.

What's next for GM and Honda with fuel cells?

Honda has offered FCVs for sale (or lease) in a very limited way for several years. Its current model, the Clarity Fuel Cell sedan, began arriving at a few California dealers late last year. (Honda said that eight Clarity FCVs were sold in the U.S. in December.)

GM developed this fuel-cell-powered Chevy Colorado for military use. It's currently being tested by the U.S. Army. Image source: General Motors.